Gold Climbs as Dollar Falls, Silver Advances

New York gold futures on Wednesday advanced for the third time in four days as the US dollar was pressured lower on expectations that the Fed would hold interest rates low for some time. The yellow metal on Tuesday had dropped the most in three weeks on profit taking and news of China clamping down on its monetary policy.

In other metals, silver gained 1.6 percent but platinum finished down 0.3 percent. Platinum was not the only commodity to fall. New York crude oil prices dropped for a third straight day and below $80 a barrel after a government report showed higher than expected inventories. US stocks rallied late, with the Nasdaq rising the most at 1.12 percent.

New York precious metal figures follow:

Gold for February delivery rose $7.40, or 0.7 percent, to $1,136.80 an ounce. It ranged from $1,118.50 to $1,138.00.

Silver for March delivery gained 29.5 cents to finish at $18.550 an ounce. It ranged from $18.200 to $18.625.

April platinum declined $4.20 to end at $1,574.40 an ounce. It ranged from $1,592.90 to $1,556.00.

In PM London bullion, the benchmark gold price was fixed to $1,127.25 an ounce, which was a decline $24.00 from Tuesday. Silver dropped 6 cents to $18.350 an ounce. Platinum was settled at $1,577.00 an ounce for a gain of $1.00.

Notable bullion quotes follow:

"This morning and last night, there were quite a few physical buyers bargain-hunting around in the marketplace, and we saw some good demand out of India and elsewhere," Afshin Nabavi, head of trading at MKS Finance, said on Reuters."With the dollar back on the slide, there is more interest," he added.

"If the Fed foolishly keeps interest rates too low for too long, money is going to flow into gold and commodities," Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois, said on Bloomberg.

"Following their worst drop in three weeks on Tuesday, gold prices staged an overnight recovery as additional dollar weakness prompted some bargain hunting in the overseas markets," wrote Jon Nadler, senior analyst at Kitco Metals, Inc. "A recapture of price levels above $1142 is essential for gold at this time, before any attempts towards the high $1160s or the $1174 grail can be aimed for." [Read Nadler’s full commentary.]

Gold, considered a hedge during times of high inflation and economic uncertainty, tends to follow oil and move opposite to the U.S. dollar. A rising greenback makes dollar-denominated commodities, like bullion, more expensive for holders of other world currencies.

On the numismatic front for gold, the United States Mint revealed final sales for UHR $20 Gold Coins. The 24-karat, .9999 fine gold piece was digitally reproduced from Augustus Saint-Gaudens’ original ultra high relief 1907 Double Eagle — described by many as the most beautiful American coin ever produced. The Mint said it had sold 115,178 of the gold coins. Also in the news, the US Mint on Tuesday said the bullion 2009 Eagle Silver Coins sold out, and reaffirmed its plan to release the 2010-dated gold and silver bullion versions on Tuesday, Jan.19.

Oil and gasoline prices

Oil prices declined "after the Energy Information Administration reported bigger-than-expected increases in U.S. supplies of crude and distillates," wrote Polya Lesova and Nick Godt of MarketWatch.

The EIA reported that crude supplies climbed by 3.7 million barrels last week to 331 million barrels. Most forecasters expected an increase of less than 2 million barrels, with some predicting an increase as low as 1 million barrels. Distillate fuel inventories rose by 1.35 million barrels to 160.4 million.

"The distillate number was an absolute shocker," Peter Beutel, president of trading adviser Cameron Hanover Inc. in New Canaan, Connecticut, said on Bloomberg. "These are bearish numbers, with plus signs in front of the three major categories."

New York crude-oil for February delivery dropped $1.14, or 1.4 percent, to $79.65 a barrel.

The national average for regular unleaded gasoline jumped six-tenths of a cent to $2.757 a gallon, according to AAA fuel data. That is 7.2 cents higher than last week, 15.4 cents more than a month back, and 96.7 cents above the price of a year ago.

U.S. Stocks

U.S. stocks rallied as "as investors resumed the advance after a one-day selloff, scooping up tech and financial shares despite Google’s potential shutdown of its China operations and testimony from major bank executives," wrote Alexandra Twin of CNNMoney.

Gold, Silver, and Metals: Prices and Commentary – Jan. 13

Following their worst drop in three weeks on Tuesday, gold prices staged an overnight recovery as additional dollar weakness prompted some bargain hunting in the overseas markets. The yellow metal was thus far only able to retrace about a third of yesterday’s significant losses with said lukewarm buying patterns, and remains some distance from the previous $1142 resistance area it previously overcame during its late Sunday/early Monday rally. The market feels somewhat tired following yesterday’s surprise drop and could possibly take aim towards lower levels once again.

China’s raising of reserves for its banks and a couple of other dollar-supportive/ commodities-negative statements have now put a damper on what was shaping up to be quite the start in the markets for 2010.

Today’s roundup of global economic news shows that various economies are still facing significant problems of one type or another. For instance, the German economy is thought to have been flat during the last quarter of 2009, while the country’s GDP most likely shrank at a 5% annualized rate last year. This is Germany, folks, the economic engine of the EU.

Meanwhile, the economies of Portugal and Greece (according to Moody’s):"may face a "slow death" as they dedicate a higher proportion of wealth to paying off debt and investors demand a premium to hold their bonds, Moody’s Investors Service said. While the two countries can still avoid such a scenario, their window of opportunity" will not be open indefinitely,"

Moody’s said in a report today from London. Portugal, with a negative outlook on its Aa2 rating, has more time "to reverse this trend" while Greece "has significantly less time." Moody’s cut Greece’s rating to A2 from A1 on Dec. 22." — Bloomberg.Whether or not Portugal (which has 83.8% or its reserves in gold) might reach for at least part of its asset of last resort in order to avoid said slow death, remains an open question at this time. Resorting to reserves to pay debt is not out of the realm of possibilities, as evidenced by Argentina’s (domestically controversial) plan to use $6 billion of its reserves for just such purposes.

The midweek session in New York opened with relatively mild gains in the precious metals complex, as participants tried to rethink the implications of the Chinese anti-bubble posturing and gauge the near-term direction for the all-important (to these markets) US dollar. Gold added $6.20 to start at $1134.00 per ounce following overnight lows that took it down to $1125.00, and it has thus far not made any stabs at levels higher than $1138.00 prior to COMEX opening.

A recapture of price levels above $1142 is essential for gold at this time, before any attempts towards the high $1160s or the $1174 grail can be aimed for. Silver climbed 17 cents, opening at $18.42 per ounce, while platinum showed a $7 gain to $1576.00 per ounce. The noble metal had vaulted to just above $1600 on Tuesday morning, before heavy profit-taking set in. Palladium dropped $3 to $419 per ounce. In case you’re wondering what brought the noble pair of metals to such lofty levels, wonder no more. The purchase of 80,000 and 90,000 ounces of platinum and palladium for the two respective white metal ETFs that launched in the US just last Friday, should give you a good clue as to where some help came from.

In a market such as platinum, whose 2009 surplus was estimated to be about 390,000 ounces, an 80,000 ounce ETF-led shopping expedition can make quite a difference. The entire demand for fabricated platinum bullion coins is little more than 20,000 ounces on average, annually. Combined platinum ETF holdings amounted to over half a million ounces at their April 2009 peak.

As for palladium, whose projected surplus is estimated to have been around 175,000 ounces last year, the 90,000 ounce ETF two-day scoop-up is also quite notable in proportional terms.

While automotive, jewellery, and industrial applications demand for both metals were flat-to-down last year, the advent of specialized ETFs has helped balance things out a great deal in these markets. The problem with these vehicles remains the same one we often remind readers about, when it comes to the gold-based ETF.

More specifically, that, –upon launch- and for some time thereafter, these ETF products tend enhance existing market price gains of the underlying metal by virtue of the fact that they are in accumulation mode. Subsequent to that phase, no one really knows how these funds will impact the markets, should a flat-to-downward phase in the cycle get underway. The metals ETFs remain untested in bear markets.

The relatively large amounts of ounces or tonnage purchases that helped prices move sharply higher in the ascending phase could make for an equally powerful (negative) boost factor as regards potential price declines. For example, consider the nearly 18 tonnes of bullion that gold ETFs have lost since the beginning of 2010 for various reasons, and compare that tonnage to the monthly average gold sales by central banks for the first half of 2009: about 16 tonnes per month. This is not to say that ETFs will reliably continue to bleed such balances month after month, but the point is that the amounts in question (whether being added or redeemed) make for a sizeable, and fearsome new contender on the market scene.

Watch for the $1125-$1140 range holding (or not) depending on further dollar movements. The pound gained against the greenback as interest rate hike-flavoured jawboning issued forth from the BoE via an official. An economic assessment is due later on today from the Federal Reserve which might provide some clues on the eventual direction of US interest rates. The dollar remains near 1.45 against the euro and was last seen at 76.65 on the index – a 0.39 drop that should have had gold much higher by now…